3. The U.S. consumer is debt-burdened, with the debt-to-disposable-income ratio having increased from 70% in the early 1990s to 100% in 2000 and to 140% in 2008.
5. The value of housing wealth is now falling by over $6 trillion, as home-price depreciation will soon be 30% and reach a cumulative fall of over 40% by 2010. Recent estimates of this wealth effect suggest that the effect may be closer to 12%-14% rather than the historical 5% to 7%. And with home prices falling over 30%, about 40% of all households with a mortgage (or 21 million out of 50 million who have a mortgage) will be under water (negative equity in their homes) with a huge incentive to walk away from their homes.
6. Mortgage equity withdrawal (MEW) is collapsing from the $700 billion annualized in 2005 to less than $20 billion in the second quarter of this year. Thus, with falling housing wealth and collapsing MEW, U.S. households cannot use their homes anymore as ATM machines.
7. The value of the equity wealth of U.S. households has fallen by almost 50%, another ugly wealth effect on consumption.19. While policy rates are sharply falling, the nominal and real rates faced by households are rising rather than falling: rising mortgage rates, rising rates on credit cards, auto loans and student loans, together with less availability of credit are severely dampening the ability of households to borrow and spend.
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